doing business in scotland
TRANSCRIPT
DOING BUSINESS IN SCOTLAND
Union Plaza, 1 Union Wynd, Aberdeen AB10 1DQ DXAB35 T: +44 (0) 1224 621621 F: +44 (0) 1224 627437
www.paull-williamsons.co.uk
1. A ‘Wee’ Introduction to Scotland 4
2. Investment in Scotland 7
3. Structures for Doing Business 10
4. Other Methods of Establishing Business 14
5. Competition 16
6. Employment 20
7. Taxation 30
8. Property Transactions 37
9. Planning/Environmental 41
10. Intellectual Property 44
11. Final Comments 48
12. Contact Details 49
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This guide has been prepared by Paull & Williamsons LLP for informational purposes only. The
information contained in this guide is not to be considered legal advice or as a substitute for legal
advice, it is not intended to create, nor does it create a lawyer-client relationship. No responsibility
will be accepted by Paull & Williamsons LLP for any inaccuracy, omission or statement that might
prove to be misleading contained herein. Readers of this guide should seek independent professional
advice from a Scots Law qualified lawyer before proceeding to conduct business in Scotland.
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1. A ‘Wee’ Introduction to Scotland
Scotland’s dramatic history spans 8,000 years,
years marked by invasions, wars and religious
upheavals, intrigues and subjugation. Such a
history has left its mark on the nation’s psyche –
and its landscape – and has contributed in no
small way to the fierce pride with which Scots
view themselves and their country today.
Perched on the outer rim of Europe, Scotland
forms the northern part of Great Britain and is
about two-thirds the size of England and Wales
which occupy the remaining portion. It is
surrounded by sea on three sides - to the west
and north by the Atlantic Ocean and on the east
by the North Sea. Its only land border, that with
England, runs for approximately 60 miles along
the line of the Cheviot Hills.
1.1 Political Status
Scotland is one of the four constituent countries of the United Kingdom of Great Britain and Northern
Ireland (“the UK”). The UK is a member of the European Union, which presently has 27 member
states. Steps are being taken for the harmonisation of laws across the European Union in many areas,
such as competition, consumer law and business law. However, the laws of each member state
remain separate. The European Union includes the single European market, by which restrictions are
disapplied to the free movement of goods, capital, services and people throughout the European
Union.
Constitutionally speaking, the UK is a unitary state with one sovereign parliament and government.
As stipulated by the Treaty of Union with England in 1701, Scotland retains its own legal system, its
own education system and its own religious institutions. Under a system of devolution adopted after a
Scottish and Welsh referendum on devolution proposals in 1997, all of the constituent countries
within the UK except England were given self-governing powers, with certain limitations.
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Under devolution, executive and legislative powers in certain areas have been delegated to the
Scottish Executive and the Scottish Parliament at Holyrood in Edinburgh. The UK Parliament retains
active power over Scotland’s taxes, social security system, the military, international relations and
certain other matters. The programmes of legislation enacted by the Scottish Parliament have seen a
divergence in the provision of public services compared to the rest of the UK. For instance, care
services for the elderly and university education are free in Scotland, while fees are paid in the rest of
the UK. Scotland is also the first country in the UK to ban smoking in public places. This guide
contains information and guidance on both matters devolved to the Scottish Parliament and matters
retained by the UK Parliament at Westminster. As a result, some sections refer to the law in Scotland
specifically and others to the UK as a whole.
1.2 Economy
The Scottish economy is essentially a market economy. After the Industrial Revolution, the Scottish
economy concentrated on heavy industry, dominated by the ship building, coal mining and the steel
industries. Scotland was an integral component of the British Empire, which allowed the Scottish
economy to export its output throughout the world.
The decline of heavy industry led to a shift in Scotland towards a technology-based and service
sector-based economy. The 1980s saw an economic boom in the Silicon Glen corridor between
Glasgow and Edinburgh, with many large technology firms relocating to Scotland. The discovery of
North Sea oil in the 1970s also helped transform the Scottish economy.
Edinburgh, Scotland’s capital and second largest city, is the financial services centre of the country
and is now the sixth largest financial centre in Europe. Glasgow, the country’s largest city, is
Scotland’s leading seaport and is the fourth largest manufacturing centre in the UK, accounting for
well over 60% of Scotland’s manufactured exports. Ship building still forms a large part of the city’s
manufacturing base.
With the discovery of significant oil deposits
in the North Sea in the 1970s, Aberdeen
became the centre of Europe’s petroleum
industry. With the second largest heliport in
the world and an important service ship
harbour serving oil rigs off-shore, the city
became known as ‘the Oil Capital of Europe’.
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Other important Scottish industries include energy, chemicals, distilling, brewing, fishing and
tourism.
1.3 Innovation
Since before the Industrial Revolution, Scots have been at the forefront of innovation and discovery
across a wide range of spheres – the steam engine, the bicycle, tarmacadam roads, the telephone,
television, the transistor, the motion picture, penicillin, electromagnetics, radar, insulin, golf and
calculus are only a few of the most significant products of Scottish ingenuity. In the 21st century, the
technologies may have changed but the creative spark still burns brightly, seen most prominently
perhaps in the creation of Dolly the sheep, the world’s first cloned mammal.
It’s difficult to point to any single factor in making Scotland such a hotbed of creativity, although the
Scots have always placed a high value on education. A prodigious work ethic, a self-confidence and
vision, and perhaps even the weather, may have also played a role. Yet even when they left their
native country, Scots took that creative impetus with them and continued to distinguish themselves in
their adopted countries. Amazingly, for a country whose population has never been much in excess of
5 million, native Scots or those descended directly from them have been the recipients of some 11%
of all the Nobel Prizes ever awarded.
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2. Investment in Scotland
2.1 Foreign Investment
Scotland generally welcomes investment.
No legislation restricts foreign investment in
Scotland. Foreign investment in new
manufacturing and internationally traded
service businesses is encouraged. General
speaking, foreign companies or individuals
may acquire businesses within the country
and obtain securities, land or mortgages
without a special license or permission.
2.2 Grants
Regional Selective Assistance (RSA) is the main investment grant scheme for businesses that are
looking to invest in designated areas of Scotland (‘the Assisted Areas’). RSA grants are available to
companies, joint ventures, partnerships and other commercial entities whether they are Scottish
owned businesses or owned or registered outside Scotland.
Three types of Assisted Areas exist – Tier 1, Tier 2 and Tier 3. Powers to offer RSA grants in Tier 1
and Tier 2 areas are contained in Section 8 of the Enterprise and New Towns (Scotland) Act 1990 and
Article 13 of the EC General Block Exemption Regulation (EC) No 800/2008. Powers to offer RSA
grants to small and medium sized businesses are contained in the same section of the 1990 Act and
Article 15 of Regulation 800/2008, these apply to Tier 2 and Tier 3 areas. The amount of grant is
subject to upper limits that vary depending on the tier in which the project falls. If a sufficient
number of jobs are to be created, the likely rate of grant is 10-15% of the project’s capital expenditure
in Tier 2 or 3 areas, but larger grants are possible. Grants of double this rate may be available in Tier
1 areas.
On the face of it, the RSA grants system may seem complicated and it does contain pitfalls for the
unwary. However, well-founded projects that are persuasively presented can receive significant
grants.
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2.3 Financial System
The United Kingdom’s financial system, which includes Scotland, is governed by the Financial
Services and Markets Act 2000 (‘the FSMA’). This Act deals with all aspects of financial regulation
in the country. In addition it sets out the functions and duties of the Financial Services Authority (‘the
FSA’) which has responsibility for the financial institutions of the UK as a whole. The FSA is an
independent non-governmental body, given statutory powers by the FSMA.
The four main aims of the FSA are:
• to maintain confidence in the financial system
• to promote public understanding of the system
• to secure the right degree of protection for consumers, and
• to help reduce financial crime
A general prohibition exists under section 19 of the FSMA on any person carrying on a Regulated
Activity unless authorised or exempt. Regulated Activities, which include banking, are defined in
Schedule 2 of the FSMA. Section 3 of the Banking Act 1987 (‘the Banking Act’) places an absolute
prohibition on the acceptance of deposits unless the person is an institution authorised by the FSA or
is otherwise exempt under the Banking Act.
Those entitled to seek permission from the FSA to accept deposits from the public are called
‘Authorised Institutions’. These are the bodies listed in Schedule 2 of the Banking Act and include
the Scottish clearing banks (The Royal Bank of Scotland plc, Bank of Scotland plc, Lloyds TSB
Scotland plc and Clydesdale Bank plc). They are called clearing banks because they are a member of
the British Bankers Clearing House, through which the majority of cheques are cleared. They
generally provide core banking activities including insurance/assurance, pensions and loans to
individuals, small business and corporate banking facilities. One distinction between the Scottish
clearing banks and their English counterparts they are able to print their own bank notes.
The structure of the banking system has a strong legal framework. Statutory regulation and
supervision of banks is under the umbrella of the FSMA and FSA. Banking is a highly regulated
activity, not only in terms of statutory regulation, but also in the practices that have arisen by way of
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trade and practice. Many of the rules governing banking practice have been subject to judicial
interpretation, and this is yet another source for rules governing the banking system.
Banks are also subject to various ‘Banking Codes’. These take the form of written documents setting
out the rights and duties of both parties to the banking contract. The principal code, drawn up by the
Banking Standards Board, represents best practice. The codes are voluntary. However, the courts can
have regard to them when deciding cases involving banking. The Financial Service Ombudsman (an
independent body set up by statute to deal with disputes between consumers and financial institutions,
and whose decisions are binding on the institutions concerned) also refer to the codes when handling
complaints against banks.
2.4 Anti Money Laundering Restrictions
The main provisions relating to the prevention of money laundering in Scotland are contained in Part
7 of the Proceeds of Crime Act 2002 and the Money Laundering Regulations 2003. Money
laundering is defined in general terms as concealing, transferring or facilitating the holding of
criminal property.
The consequence is that there is an obligation placed on banks and other regulated institutions to
‘know their customers’. This entails verification of customer identity when opening accounts. Banks
must also satisfy themselves as to the source of any funds or assets used in transactions. Suspicious
transactions must be reported to the authorities. They must disclose not only a knowledge or
suspicion of money laundering, but also if they have reasonable grounds for knowing or suspecting
that a person is engaged in money laundering.
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3. Structures for Doing Business in Scotland
3.1 Sole Trader
This is an individual in business on his or her own account . Sole Traders have the advantage of
avoiding most of the formalities of the structures outlined below (other than the primary ones
concerning tax such as registering for VAT, if necessary). Sole Traders also have the advantage of
retaining overall control and keeping finances confidential.
However, with these advantages there are risks involved as a Sole Trader will be personally
responsible for all the debts of the business and all contracts will be held in his own name (whether or
not a trading name is used).
3.2 Partnerships
A partnership will generally arise where two or
more people carry on business together on the
basis of a written partnership agreement
(although this is not obligatory). A key aspect
of a partnership is that the partners carry on the
business in common, each of them having the
right to be involved in making business
decisions, sharing the profits but also bearing
joint and several responsibility for sharing any
losses.
The advantages of a partnership are confidentiality (as there is no requirement to publicise accounts),
equal involvement in the business and the fact that there are few formalities involved in the setting up
of the partnership. Partnerships have legal personality, therefore, the partnership can sue and be sued
in its own name and is subject to different rules on ranking in bankruptcy.
3.3 Limited Liability Partnerships (“LLPs”)
LLPs share many of the features of a normal partnership but also offer reduced personal responsibility
for business debts. Unlike members of ordinary partnerships, the LLP itself is responsible for any
debts that it runs up, not the individual partners. It allows individuals to invest capital in a partnership
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without risk of further liability, unlike an ordinary partnership where the partners are jointly and
severally liable for the debts of the business.
Unlike ordinary partnerships, more similar to companies, LLPs are required to be registered at
Companies House and prepare accounts. These accounts are filed at Companies House and as a result
are on public record, however, depending on the size of the LLP, it may be possible to file abbreviated
accounts which have limited information and do not disclose the profit figure.
3.4 Companies
3.4.1 The Limited Liability Company
The most common formal structure for carrying on business in Scotland is the limited liability
company, as incorporated under the Companies Act 2006 (“the 2006 Act”). ‘Limited liability’ means
that the extent of the shareholders’ liability is restricted to the amount of share capital in which they
have invested. The company itself remains liable, without limit, for its debts. The liability of the
shareholders on a winding-up is in general limited to any amount unpaid on the shares they hold.
Two forms of limited liability companies exist:
1. the private limited company (e.g. ABC Limited or ABC Ltd)
2. the public limited company (e.g. ABC plc)
All companies registered in Scotland have a constitution which is divided into two documents, namely
the memorandum of association and the articles of association. For companies incorporated under the
2006 Act, the memorandum will simply state that the subscribers wish to form a company and agree
to become members of the company. The articles of association contain the regulations governing the
company’s internal management which includes the objects of the company, previously contained in
the memorandum. The 2006 Act does not require a company incorporated under it to state its objects,
but a company may specifically restrict its objects if it so wishes. A company's objects will be
unrestricted unless the constitution specifically restricts them.
In both forms of limited liability company the share capital can be organised into many different
classes, each conferring different rights or restrictions. Shares may be denominated in currencies
other than Sterling. There are no minimum capital requirements for private limited companies,
although it is rare that a private limited company will have an issued share capital of less than £1.00
sterling.
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In return for the benefits of limited liability, the law requires a degree of transparency and every
company incorporated in Scotland are required to prepare annual accounts and have them audited and
registered with the Registrar of Companies (often referred to as “Companies House”). The process or
registration is very simple and inexpensive as it involves only the delivery of the accounts, there is no
process of approval or checking by Companies House. However, it does mean that the accounts are in
the public domain and available for inspection by anyone. In addition, companies are required to
keep Companies House informed in respect of changes at the company such as changes to directors
and shareholders.
The directors, and the company secretary (although companies are no longer required to have a
company secretary under the 2006 Act), are the only officers of the company and, unless limited by
the company’s constitutional documents, are authorised to act on behalf of and bind the company.
The board of directors is not responsible to any supervisory board, but the 2006 Act sets out duties
owed by the directors to the company which includes, for example, a duty to act within the powers
conferred on the directors by the company’s constitutional documents and a duty to exercise
reasonable care, skill and diligence.
All Scottish registered companies need to
have a registered office. This is the location
where legal proceedings may be served on
the company and where certain registers and
company documents must be kept. Paull &
Williamsons LLP provides registered office
facilities to clients.
Companies House maintains an index of names of all the companies registered in Scotland and the
rest of the UK. It is not possible for a new company to use the same name as an existing company.
The use of certain words such as “UK” and “International” requires consent of the Registrar of
Companies.
3.4.2 Unlimited Liability Companies
An unlimited liability company is a company with no limit on the liability of its members, although,
with the exception of any amount unpaid on shares held in the company, this liability will arise only
where the company is insolvent on wind up. It is for this reason unlimited liability companies are
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rarely used for conducting business in Scotland. An unlimited liability company can be re-registered
as a limited company, subject to compliance with the relevant legislation.
For advice or further information regarding the various business structures in Scotland please
contact the Business Services department at Paull & Williamsons LLP. Contact details are available
in Section 12.
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4. Other Methods of Establishing Business in Scotland
In addition to incorporating a Scottish registered subsidiary by way of one of the structures outlined in
Section 3, the other methods of establishing business in Scotland include:-
1. Establishing a branch or place of business; and
2. Appointing an agent.
4.1 Establishing a Branch or Place of Business
A foreign company can conduct business in Scotland by establishing a branch or a place of business.
A branch is not a separate legal entity (nor is a place of business). A company can be incorporated
abroad and then carry out all of its business through a branch in Scotland.
If a company is setting up a permanent place of business in Scotland, which can directly carry out
business, this creates a branch office and certain rules must be followed under the provisions of the
Overseas Companies Regulations 2009 (“the 2009 Regulations”), which apply to the UK as a whole.
The 2009 Regulations are based on the Eleventh Company Law Directive (89/666/EEC).
The 2009 Regulations provide a single regime for overseas companies wanting to have an
establishment in the UK. Accounting requirements are imposed on such companies as well as
regulation of disclosure of information and formation and execution of contracts. It should be noted
that Part 10 relating to trading disclosures applies to all overseas companies, and not just overseas
companies with a registered UK establishment.
4.3 Appointing an Agent
A company that chooses to appoint an agent will avoid the regulatory burden of having to incorporate
a company or establish a branch of place of business. However, an agent may not meet the
requirements of the company if it wants to establish a greater presence.
If the agent is involved in the sale and purchase of goods, the relationship between the agent and the
principal is governed by a protective European law, based on the French and German laws of agency.
This provides certain mandatory rules, including the requirement that both parties act in good faith
and a minimum notice period for termination, which increases every year. If the principal terminates
the contract for reasons other than material breach, he may be liable to pay various sums to the agent
even though there may be no contractual or other right to damages. The agent may also be entitled to
an indemnity or compensation. Essentially, they give the agent a right to a payment taking account of
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the contribution he has made to building up the customer base and the ongoing benefits which the
principle will enjoy. The difference between indemnity and compensation are, most notably, that
indemnity payments are capped at 12 months commission averaged over the last 5 years. Under the
Commercial Agents Regulations 1993, which applies to Scotland, principals and agents can agree to
choose either, but if no choice is made the compensation concept applies.
Despite these mandatory rules, it is important to set out the rights of both parties in an agency
agreement as European law allows either party to demand a written agreement. The agreement should
state the authority and remuneration of the agent, and whether the principal is obliged to furnish the
agent with work.
For advice or further information regarding methods of establishing business in Scotland please
contact the Business Services department at Paull & Williamsons LLP. Contact details are available
in Section 12.
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5. Competition Law
European Community (“EC”) and UK competition laws apply to all legal entities carrying on business
in Scotland. These prohibit certain anti-competition agreement and abuses of market power, in
addition to regulating mergers and acquisitions to ensure they do not substantially lessen competition
in affected markets.
The main provisions of UK competition law are the Competition Act 1998 (“the 1998 Act”) and the
Enterprise Act 2002 (“the 2002” Act). The EC provisions are very similar to those contained in the
1998 Act and the 2002 Act, however, they only apply where trade between Member States is effected.
The Office of Fair Trading (“the OFT”) is the UK’s competition authority and has the power to apply
both UK and EC competition laws.
5.1 Anti-Competition Agreements
Introduced by Chapter I of the 1998 Act, and modelled on Article 81 of the EC Treaty, agreements
which have as their object or effect the prevention or distortion of competition in the UK are
prohibited. Such agreements, or the relevant clauses, will be void and unenforceable. Fines of up to
10 per cent of the company’s worldwide turnover may also be imposed by the OFT.
An agreement will only infringe Chapter I if it has an appreciable effect on the competition in the UK.
The OFT applies an “appreciability test” so that minor agreements are not caught. Agreements
between competitors with a combined market share of less than 10 per cent will not generally be
regarded as having an appreciable effect, neither will agreements between non-competitors where
each has a market share below 15 per cent. However, the above will not apply in the case of
agreements between competitors containing provisions which fix prices, share markets or limit
production with such agreements deemed appreciable regardless of the companies’ market share.
Agreements can be exempted from Chapter I in three ways:-
1. If the benefits of the agreement to the economy and customers (as well as other factors stated
in the 1998 Act) outweigh its detrimental effect to the competition.
2. If the agreement is granted in respect of a particular category (for example distribution and
franchising agreements and technology transfer agreements).
3. If the agreement falls within the scope of any of the European Commission’s block
exemptions under Article 81(3) EC.
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5.2 Abuse of Dominant Position
Chapter II of the 1998 prohibits the abuse of a dominant position which arises where a company
enjoys a market share of 40 per cent or more.
An abuse of dominance may arise in many ways but examples of the most common abuses are
excessive pricing, discriminatory pricing and refusal to supply without objective justification.
Abuse of dominant position is unlawful and, as is the case with the Chapter I prohibition, fines of up
to 10 per cent of worldwide turnover can be imposed by the OFT. However, unlike Chapter I, no
exemptions are available.
5.3 Complaints and Investigation
Complaints alleging an infringement of either Chapter I or II can be made to the OFT (or in some
cases the European Commission). On the basis of the information supplied an assessment will be
made as to whether an infringement has taken place.
The 1998 Act grants the OFT extensive powers to investigate suspected infringements of the
prohibitions. This includes the power to carry out ‘dawn raids’ along the lines of those carried out by
the European Commission. The 2002 Act gives the OFT the power, when it obtains a warrant in
connection with a 1998 Act investigation, to take authorised, non-OFT, staff on company visits to
assist with the collection and assessment of evidence stored in computers on site. Obstruction of an
investigation or supplying false information can result in criminal sanctions.
5.4 Cartel Activities
Under the 2002 Act, it is a criminal offence to knowingly engage in “Cartel Activities”. Cartel
Activities are defined as:-
1. price fixing;
2. limiting supplies or production;
3. market sharing; or
4. bid rigging.
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The OFT and Serious Fraud Office both enjoy sweeping powers of investigation should they suspect a
cartel is in existence.
5.5 Sanctions
Infringement of the offences outlined in 5.1, 5.2 and 5.4 above may (under the 2002 Act) result in the
disqualification of the directors of the companies involved where the individuals concerned are found
to have engaged in such conduct as to make them unfit to be concerned in the management or control
of a company. The OFT may apply to the Courts for such an order to be made.
5.6 Merger Control
Merger control provisions are contained in Part III of the 2002 Act and the OFT and the Competition
Commission are given merger control powers.
A transaction only qualifies for investigation if the OFT can determine whether a relevant merger
situation has been or will be created. Mergers falling within the criteria laid out in the European
Merger Control Regulation (“EMCR”) must be notified to the European Commission.
Essentially the OFT must be satisfied that:-
1. two or more enterprises have ceases to be distinct;
2. the merger did not take place more than four months prior to the date of the decision on
reference; and
3. the merger meets either the share of supply or the turnover test.
The share supply test is satisfied if the transaction creates or enhances a market share of 25 per cent in
the UK. In situations where one business already has a 25 per cent share of supply and the other has
no share, the rest is not met. The turnover test is met if the business being acquired had a UK
turnover exceeding £70 million.
Although notification is voluntary, most parties do notify where the transaction raises any material
competition issues, so as to avoid the risk of intervention by the authorities post closing. The test
applied by the OFT under the 2002 Act is whether the merger will give rise to a substantial lessening
of competition in the UK. Where there is a risk that it may do so, the OFT will refer the merger to the
Competition Commission for investigation. Following an enquiry the Commission will decide to
clear or block the transaction or to clear it subject to conditions.
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For advice or further information about any aspect of EC or UK competition law please contact the
Business Services department at Paull & Williamsons LLP. Contact details are available in Section
12.
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6. Employment Law
6.1 Contracts of Employment
Employers have a statutory requirement to provide employees with a written statement of terms and
conditions of employment within two months of employees commencing employment. This
statement must cover certain specified areas, for example, details of pay, notice periods, duties,
holidays and hours of work. It will also contain a reference to the employer’s disciplinary and
grievance procedures.
6.2 Terms of Employment
6.2.1 Minimum Wage
There is a minimum wage, which, as at 17 February 2010, is as follows:
• Adult rate for employees aged 22 and over is £5.80 per hour;
• Development rate for employees aged 18 to 21 (inclusive) is £4.83 per hour; and
• Youth rate for employees aged 16 to 17 is £3.57 per hour.
Additionally, the adult rate of the minimum wage will be extended to 21 year-old employees from
October 2010.
6.2.2 Hours of Work
The European Working Time Directive, implemented by the Working Time Regulations 1998 (“the
Regulations”), restricts the number of hours that an employee can work. The Regulations impose a
limit of an average of 48 hours a week which an employee can be required to work. However,
employers can ask that employees consent in writing to “opt-out” of the 48 hour weekly working
limit.
Young workers, meaning those above the minimum school leaving age but under the age of 18,
cannot be required to work more than 40 hours per week.
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6.2.3 Holiday Entitlement
Employees, whether full time or part time, have a statutory entitlement to a minimum of four weeks’
paid annual leave. A week’s leave shall be equal to a typical working week, for example, if an
employee typically works a five day week, they are entitled to 20 days’ leave.
Any additional days leave are at the discretion of the employer.
6.3 Discrimination
Employees have the right not to be discriminated against on the grounds of race, (which includes
nationality, colour or ethnic origin), sex, age, disability, sexual orientation or religion. This applies
when offering employment, in the course of employment or in respect of its termination.
6.3.1 Equal Pay
The Equal Pay Act 1970 states that employees have a right to receive equal pay (and equality in
respect of other contractual terms) to that received by an employee of the opposite sex doing like
work, work rated as equivalent under an analytical job evaluation study or work that is proved to be of
equal value.
The only defence an employer will have is if it can prove that the difference in pay is genuinely due to
a reason other than sex.
Employees may bring claims before the Employment Tribunal and they can be brought at any time
during employment or within six months of cessation of employment. If a claim is successful, the
employee will be entitled to the same level of pay or benefits as his or her comparator in the future
(provided they are still in the same job) and back pay representing the difference in pay with interest.
The maximum sum of back pay that can be claimed in Scotland is up to five years.
6.3.3 Race Discrimination
The Race Relations Act 1976 (“the 1976 Act”) contains provisions which prohibit discrimination in
employment. The prohibitions apply in respect of race, colour, nationality (including citizenship) or
ethnic or national origin. The provisions in the 1976 Act apply in relation to recruitment, job offer
terms, access to opportunities for promotion, transfer or training and access to benefits, facilities and
services. The 1976 Act also states that dismissal because of a person’s race is unlawful, as is
victimisation.
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6.3.4 Sex Discrimination
The Sex Discrimination Act 1975 (“the 1975 Act”) contains provisions which prohibit discrimination
on the sex (which includes gender reassignment) in employment. It also prohibits discrimination on
marital grounds. The provisions in the 1975 Act, similar to the 1976 Act, apply in relation to
recruitment, job offer terms, access to opportunities for promotion, transfer or training and access to
benefits, facilities and services. The 1975 Act states that dismissal because of a person’s sex or
marital status is also unlawful.
6.3.4 Age
The Employment Equality (Age) Regulations 2006 (“the 2006 Regulations”) prohibits discrimination,
direct or indirect, on the grounds of age in employment. Direct or indirect discrimination is unlawful
unless it can be objectively justified. Justification may be demonstrated if the employer can show that
they have a legitimate aim and that is was an appropriate and necessary means of achieving that aim.
The 2006 Regulations also require an employer to give at least 6 months’ notice to an employee
before their intended retirement date and must inform the employee of their ‘right to request’ the
ability to work beyond the intended retirement date.
6.3.5 Disability
The Disability Discrimination Act 1995 (“the 1995 Act”) contains provisions which make it unlawful
for an employer to treat a disabled person less favourably in relation to employment. The 1995 Act
protects disabled job applicants and employees in respect of recruitment, the terms on which
employment is offered, terms and conditions of employment, opportunities for promotion, transfer or
training and access to benefits, facilities and services, dismissal or any other detrimental treatment.
The 1995 Act also makes it unlawful for an employer not to make reasonable adjustments to working
conditions and environment to overcome the practical effects of disability.
6.3.6 Sexual Orientation
The Employment Equality (Sexual Orientation) Regulations 2003 (“the 2003 Regulations”) prohibit
discrimination in employment on grounds of sexual orientation. Protection is extended to people
whether they are orientated towards people of the same sex, the opposite sex or both sexes.
Employees who are discriminated against because of the sexual orientation of their family and friends
are also protected under the 2003 Regulations.
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6.3.7 Religion or Belief
The Employment Equality (Religion or Belief) Regulations 2003 prohibit discrimination on the
grounds of religion or belief.
6.3.8 Remedies
The remedies under the Acts and Regulations specified in 6.3.1 to 6.3.7 are as follows:
• An order declaring the rights of the parties in relation to the act to which the complaint
relates;
• An order requiring the employer to pay compensation to the employee both for loss of earning
and injury to feelings. Note, compensation is uncapped; and
• A recommendation that the employer take certain action within a specified time with the
purpose of reducing or removing the adverse effect on the employee of the discrimination in
question.
6.3.9 The Equality Bill
The Equality Bill, which will bring together and amend the existing discrimination legislation,
specified above, concerning sex, race, disability, sexual orientation, religion or belief and age, was
published in April 2009. The Government hopes that the Bill will receive Royal Assent in the Spring
of 2010 and come into force later in 2010.
6.4 Family Friendly Rights
6.4.1 Maternity Leave
Employees who are pregnant enjoy a number of statutory rights, for example, paid time off to receive
ante-natal care, maternity leave and protection from dismissal by reason of pregnancy or childbirth.
A pregnant employee is entitled to a minimum of 26 weeks ordinary maternity leave regardless of
how long she has worked for the employer. If the employee has been employed for at least 26 weeks
at the start of the 15th week before the expected week of birth, she will also have a right to take
additional maternity leave for a further 26 weeks commencing at the end of the ordinary maternity
leave period.
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During this leave a woman is entitled to all the benefits of her contract except the right to receive
wages or salary. However, she will receive statutory maternity pay (“SMP”) provided she has been
continuously employed by her employer for at least 26 weeks (calculated back from 15 weeks before
the due date of birth). SMP is paid for 26 weeks from the time the employee starts maternity leave
and is payable at two rate. For the first six weeks she is entitled to 90 per cent of her weekly earnings
(which is uncapped) and for the remaining 20 weeks, £123.06 or 90 per cent of weekly earnings (if
this is less that £123.06). Any additional maternity leave is unpaid.
An employee who has taken ordinary maternity leave has the right to return to the same position on
the same terms and conditions as prior to her absence. The same applies to an employee returning
from additional maternity leave, however, if it is not reasonably practicable for her employer to offer
her the same position she is entitled to be offered another suitable alternative position.
The employee’s contract of employment may provide for an enhanced maternity package.
6.4.2 Paternity and Parental Leave
Employees (male or female) are entitled to take time off work to look after a child or make
arrangements for its welfare, provided the employee has one years service with the employer. The
Employment Regulations Act 1999 (“the 1999 Act”) contains provisions allowing employees to 13
weeks unpaid leave per child up to the child’s fifth birthday (or 19 weeks leave during the first 18
years of the child’s life if the child has a disability). The 1999 Act also contains provisions which
allow employees ‘reasonable’ time off to deal with emergencies involving dependents. Again, this
leave is unpaid.
There is also an entitlement to two consecutive weeks of paid paternity leave. As with SMP, before
an employee is entitled to statutory paternity pay (“SPP”), he must satisfy a number of conditions
relating to length of services, relationship to the baby or the mother of the baby, level or earnings and
reason for ceasing work. SPP is paid at the rate of 90 per cent of salary or £123.06 per week,
whichever is lower.
6.5 Termination of Employment
There are a number of ways in which a contract of employment may be terminated. Establishing the
methods of termination may be important in considering whether the employee can bring a claim for
unfair dismissal, wrongful dismissal or redundancy.
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6.5.1 Unfair Dismissal
An employee with at least one year’s service continuous service, who is dismissed without good
reason or without following a fair procedure, has the right to bring a claim for unfair dismissal. A
claim may be brought before an Employment Tribunal within three months of the date of dismissal.
In order to successfully defend such a claim, the employer has to demonstrate that it has a fair reason
for dismissal and that it has followed a fair procedure. If the dismissal is held to be unfair, the
employer can be ordered to re-engage (the employee returns to a similar position with the employer),
reinstatement (the employee returns to the same position) or, most commonly, to pay compensation.
The fair reasons for dismissal are redundancy, misconduct, capability, that it would contravene a
statutory enactment to continue to employ the employee (for example, absence of a work permit
where required) or some other substantial reason. What constitutes fair procedure will vary case by
case.
Successful claimants are entitled to a basic award, calculated on the employee’s age, length of service
and gross wage up to a maximum of £11,400, a compensatory award up to a maximum of £65,300
and, where an employer has failed to comply with a reinstatement or re-engagement order, an
additional award. This additional award will be for between 26 and 52 weeks pay up to the maximum
of £380 per week.
6.5.2 Constructive Dismissal
This is where the employee leaves their job due to the employer's behaviour. For example, the
employer has made the employee's life very difficult and the employee feels that they cannot remain
in their job. When this happens the employee's resignation is treated as an actual dismissal by the
employer, so the employee can claim unfair dismissal. The employer's actions must have amounted
to a fundamental breach of contract.
Examples of Constructive Dismissal can include:
• not supporting managers in difficult work situations;
• harassing or humiliating staff, particularly in front of other less senior staff;
• victimising or targeting particular members of staff;
• changing the employee's job content or terms without consultation;
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• making a significant change in the employee's job location at short notice;
• falsely accusing an employee of misconduct such as theft or of being incapable of carrying
out their job;
• excessive demotion or disciplining of employees.
An employee may resign over one serious incident or due to the build up of a number of incidents.
However, the employee must resign soon after the incident in order to be able to rely upon it.
Generally the actions of the employer must be a serious breach of contract.
An employee being constructively dismissed only proves that they were dismissed, it does not
automatically prove that the dismissal was unfair. The employee has to go on and prove that the
dismissal was also unfair.
This can be a tricky area, an employee can resign and claim constructive dismissal due to the
employer's behaviour, but the employer could turn around and say that he (the employer) breached the
employment contract, but that it was done, for example, because of the reorganisation of the business.
The chances are that the employer will be given the benefit of the doubt. The reason for this is that
Employment Tribunals do not like to interfere with business management.
If on the other hand the employee resigned because he or she thought that they had been treated too
harshly over a disciplinary matter, it would be easier for the Tribunal to look for and find unfairness.
If the constructive dismissal is connected to one of the unfair dismissal exceptions it will be simple to
prove that it was unfair.
6.5.3 Wrongful Dismissal
Wrongful dismissal should not be confused with unfair dismissal, wrongful dismissal is based on
contract law. Any claim for wrongful dismissal will, therefore, mean looking at the employment
contract of the employee to ascertain whether the employer has broken the contract.
The most common breach is where the employee is dismissed without notice or the notice given is too
short. Obviously either party can end the employment relationship if they give the necessary notice.
This will either be the legal minimum or what is stated in the employee's contract.
However, the employer can justify dismissing the employee without notice (summary dismissal) if the
employee commits a serious breach of the contract, for example theft. The employer does not have to
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have proof of the theft, suspicion is enough. The employer can also rely on evidence that is only
found after the dismissal.
Wrongful dismissal claims can be brought in the Employment Tribunal, county court or High Court
depending on the value of the claim.
6.5.4 Redundancy
Dismissal by way of redundancy will arise where an employer intend to stop carrying on the business
either altogether or in the place where the employee is employed and where there is no longer a
requirement for an employee or employees to carry out work of a particular kind.
Provided that the employee has completed two years continuous employment, they will be entitled to
a redundancy payment.
The amount of the redundancy payment is calculated according to the length of the employee’s
continuous period of employment, age and pay expressed as a weekly figure (currently capped at
£380). In the event the employer fails to make a redundancy payment, the employee is entitled to
bring a claim before an Employment Tribunal.
Where an employer is proposing to dismiss at least 20 employees as redundant within a period of 90
days or less, it must consult about the dismissals with “appropriate representatives” of the affected
employees (either a recognised trade union or elected representatives) and notify the Department of
Trade and Industry.
6.6 Transfer of Undertakings (Protection of Employment) Regulations 1981 (“TUPE
Regulations”)
The TUPE Regulations apply where an “undertaking” is “transferred” from company A to company
B. An undertaking could be anything from a whole business to a single employee.
The TUPE Regulations implement the terms of the Acquired Rights Directive 77/187 and the aim is
ensure that, where there is a transfer of an undertaking:-
• the employment contracts of the employees employed in the undertaking, along with all the
rights, powers, duties and liabilities of the transferor under those contracts pass to the
transferee;
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• any dismissal connected with the transfer is rendered automatically unfair unless it is for an
economic, technical or organisational reason entailing changes in the workforce; and
• a relevant transfer triggers obligations to inform and consult with employee representatives.
The result is individuals who are employed by the company A “immediately prior to the transfer”
automatically become the employees of the company B from the time of the transfer on the terms and
conditions previously held with company A. In addition company B inherits company A’s rights, and
perhaps more importantly, liabilities in relation to those individuals.
6.7 Health and Safety
The health and safety of employees is, so far as reasonably practicable, the responsibility of the
employer. This includes ensuring that the work place is safe and does not pose a risk to the health of
the employees, that safe systems of work are set and followed and employees are provided with
information, training and supervision necessary for their health and safety.
The Health and Safety Executive (“HSE”) is a non-departmental public body in the UK. It is the body
responsible for the encouragement, regulation and enforcement of workplace health, safety and
welfare, and for research into occupational risks in England and Wales and Scotland.
The duties of the HSE are to:-
• Assist and encourage persons concerned with matters relevant to the operation of the objectives of the Health and Safety at Work etc. Act 1974;
• Make arrangements for and encourage research and publication, training and information in
connection with its work;
• Make arrangements for securing government departments, employers, employees, their respective representative organisations, and other persons are provided with an information and advisory service and are kept informed of, and adequately advised on such matters; and
• Propose regulations.
6.8 Immigration European Economic Area (“EEA”) and Swiss nationals are entitled to enter and live in the UK without applying for permission. Nationals of some of the EEA countries may need to register under the Worker Registration Scheme and Romanian and Bulgarian Nationals may have to apply for permission.
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Non-EEA nationals are required to obtain permission to work or train in the UK. UK immigration is based on a five tier points-based system:-
• Tier 1: highly skilled workers, entrepreneurs, investors and post-study workers; • Tier 2: sponsored skilled workers with job offer; • Tier 3: low-skilled workers filling specific temporary labour shortages;
• Tier 4: students;
• Tier 5: temporary workers and the youth mobility scheme.
Applicants are awarded points based on qualifications, skills, available funds and English language abilities. Under the five tier system, an application covers both permission to work and to enter/remain in the UK. However, applicants under Tiers 2 and 5 must be sponsored by a licensed sponsor. Employers must apply to register as licensed sponsors.
For advice or further information on Employment Law in Scotland please contact one of the
Employment Law Partners at Paull & Williamsons LLP. Contact details are available in Section 12.
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7. Taxation
Taxation is, largely, outside the legislative competence of the Scottish Parliament. Taxation laws passed by the Parliament at Westminster apply to the UK as a whole. The Scottish Parliament does have tax-varying capability, albeit very limited. The Scottish Parliament has power to vary personal income tax, however, taxation of companies is outside its legislative competence. 7.1 Personal Taxation
7.1.1 Tax Residency
Individuals are taxed in the UK depending on whether they are:-
• resident in the UK;
• ordinarily resident in the UK; or
• domiciled in the UK.
The UK tax year runs from the 6th of April in one calendar year to the 5th of April in the next and
individuals are required to pay income tax on their earning during the tax year.
7.1.1.1 UK Resident/Ordinarily Resident
Individuals are resident in the UK for tax purposes if:-
• they are physically present in the UK for 183 days or more in that tax year; or
• they visit the UK regularly and after four tax years their visits average 91 days or more per
tax year. They are treated as resident from either:
o the fifth year; or
o the first day of an earlier year during which they formed the intention to make the
visits.
• they arrive in the UK for a purpose such as employment, which means that they will be in the
UK for at least two years. They are resident from date of arrival.
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Individuals are taxable as UK residents for the whole of a tax year if resident in the UK for any part of
it. However, where an individual becomes or ceases to be resident in the UK in the course of a tax
year, income tax and capital gains tax liabilities may, by concession, be apportioned and calculated on
the period of actual residence during that tax year.
7.1.1.2 Domicile
Domicile is distinct from nationality or residence and every individual has a domicile at all times.
Generally, domicile is defined by reference to a jurisdiction and not a country, for example to
Scotland or England and Wales rather than the UK. However, UK tax legislation refers to domicile in
the UK rather than its constituent jurisdictions.
A person’s place of domicile is, generally, the jurisdiction in which he intends to stay or to which he
intends to return to live permanently.
It is normally the case that an individual coming to the UK from overseas will retain their foreign
domicile provided they have an intention to leave the UK and return to their place of domicile on
some clearly foreseen and reasonably anticipated contingency. The retention of a foreign domicile
can have substantial UK tax advantages provided that individual’s affairs are structured correctly.
For Inheritance Tax purposes, an individual will be domiciled in the UK if he is not otherwise
domiciled in the UK and has been a resident for a substantial period of time. Domicile in the UK may
also be retained for a period after which a person has left the UK.
7.1.2 Income Tax
7.1.2.1 Tax Resident Employees
Income tax is a tax on an individual’s income and profits, such as income from employment from a
trade or profession and from investments.
UK tax residents are subject to income tax on income which arises anywhere in the world during that
tax year. However, in certain circumstances income which arises outside the UK from certain
sources, for example overseas pensions, an overseas trade or profession or overseas investment
income which includes foreign dividends and interest, will only be taxed if it is brought into the UK.
This is described as the “remittance basis” of taxation and such a payment is referred to as a
“remittance”.
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The income tax rates for the tax year 6 April 2010 to 5 April 2011 are:-
• Personal Allowance – the first £6,475 of earnings are exempt;
• Basic Rate – earnings from £6,475 to £37,400 are taxed at 20%;
• Higher Rate – earnings from £37,400 to £150,00 are taxed at 40% and, with effect from this
tax year, earnings above £150,000 will be taxed at 50%.
The Scottish Parliament has the power to vary the basic rate of income tax by a maximum of 5 pence
in the pound.
7.1.2.2 Non-Tax Resident Employees
Subject to any double tax treaties, non-tax residents are liable to pay income tax on:-
• earnings from employment where their duties are carried on in the UK;
• income from investments in the UK; and
• income arising from property located in the UK.
7.1.3 Capital Gains Tax
Capital gains tax (“CGT”) is a tax levied on an individual’s chargeable gains from the disposal of
assets made during a tax year. Every person has an annual allowance and chargeable gains made in a
tax year up to this amount are exempt from tax. Chargeable gains which exceed the allowance are
added to the individual’s income for that year and are taxed accordingly.
In circumstances where an individual gifts an asset or sells it to a connected party for less than market
value, generally this is treated as a disposal made at market value. As a result CGT may be payable
even if nothing has been received in return for the disposal of the asset.
UK tax residents are subject to CGT on gains realised on the disposal of assets anywhere in the world.
However, a non-domiciled resident will only be liable to pay CGT if the proceeds of the sale of assets
located outside the UK are brought into the UK.
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There are several reliefs which apply in respect of CGT liability and the most common are:-
• any gain arising as a result of the disposal of an individual’s main or only residence during the
period of ownership will not be subjected to CGT;
• business assets held for at least two years and during the period of ownership have been a
business asset, 75% of the gain is exempt from CGT; and
• CGT is not payable on a transfer of assets from one spouse to another.
7.1.4 Inheritance Tax
Inheritance tax (“IHT”) is payable upon a person’s death and is calculated based on the value of his
estate together with any part of his estate given away in the preceding 7 years. It may also be payable
in respect of certain assets held in trust and certain lifetime gifts. Most estates are not liable for IHT
because they are valued at less than the threshold (£325,000 in 2010-11).
UK domiciled individuals will be liable to pay IHT on the value of assets owned wherever they are
located. Non-UK domiciled individuals will only be subject to IHT on the value of assets he owns
which are located in the UK.
There are a number of exemptions from IHT, the most common are:-
• gifts up to £3,000 in any year (if it is not used the this allowance may only be carried
forward for one further year);
• certain small gifts up to £250 per year (although greater amounts can be given as marriage
gifts);
• gifts to a UK registered charity or to a spouse (however, there are restrictions in
circumstances where a UK domiciled spouse makes a gift to a non-UK domiciled spouse).
• gifts of business property.
7.1.5 Double Taxation Treaties
The UK has entered into a considerable number of double tax treaties with various other countries.
The purpose of these treaties is to prevent tax being charged on the same income, gains and assets
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both by the UK and the other country concerned. These treaties are not identical are each source of
income, gain or asset must be considered separately in order to ascertain how it will be taxed.
7.1.6 Individual Tax Returns
Individuals who have no additional tax to pay are not required to make an annual return of their
income or gains. However, those who do have an additional tax liability above that deducted at
source are required to file an annual tax return and pay the additional tax due. The deadline is 31st
January following the end of the tax year. Failure to either file a return or pay the tax due will result
in liability for interest and penalties.
7.2 Business Taxation
7.2.1 Corporation Tax
UK tax resident companies are liable to pay corporation tax on their worldwide profits. A company is
considered tax resident in the UK if it is either:-
• incorporated in the UK; or
• managed and controlled from the UK.
A company which is not resident in the UK but which carries on a trade in the UK through a
permanent establishment or agency is liable to pay corporation tax on the profits of the permanent
establishment or agency.
The main rate of corporation tax for the last financial year was 28%.
UK tax resident companies are liable to pay corporation tax on their capital gains at the effective rate
of tax. Rollover relief is available to companies which re-invest the proceeds from disposal of certain
types of capital assets into new capital assets. As a result, gains on such assets are deferred until the
new asset is sold. Non-tax resident companies are also liable to pay corporation tax on gains from the
disposal of assets situated in the UK that are used in the trade of the permanent establishment.
7.1.2 Value Added Tax
Value Added Tax (“VAT”) is charged on:-
• goods and services supplied in the course of business in the UK; and
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• goods imported into the UK from outside the EC.
The standard rate of VAT is, generally, 17.5%. There is a reduced rate of 5% for domestic fuel and
power are a wide range of basic goods and services such as new housing, food, domestic water and
sewerage, books, transport and children’s clothing are zero rated (i.e. VAT is charged at 0%). Goods
and services exported from the UK outside the EC are also, generally, zero rated.
VAT registration is compulsory for sole traders, partnerships and companies (including branches of
foreign companies) where their taxable turnover is greater than £68,000 or there are reasonable
grounds for believing that the value of their taxable supplies in the next 30 days will exceed this limit.
The entity then becomes taxable and must notify Customs and Excise of their liability to register for
VAT. They may, also, voluntarily register for VAT. Failure to notify Customs and Excise may result
in a fine.
Every taxable entity must keep a VAT account summarising the output tax and input tax for each
VAT period (normally 3 months, although a 1 month period may be allowed in circumstances where
input tax is likely to exceed output tax on a regular basis). VAT account information must be reported
on at VAT return for each period and submitted to Customs and Excise together with the tax due,
within 1 month of the end of the VAT period. Customs and Excise may charge penalties and interest
for late submissions of returns and late payment of VAT.
7.1.3 Stamp Duty
Stamp duty reserve tax is payable upon the transfer of shares and certain securities. The standard rate
is 0.5%, however, a higher rate of 1.5% applies in situations where shares are transferred to
depositories, such as American Depository Receipts, or into a clearance system.
Stamp duty land tax (“SDLT”) is a tax on land transactions involving any estate, interest, right or
power in or over land.
Further information on SDLT is detailed in Section 8 (Property Transactions).
7.1.4 Customs Duties
There are 3 main types of customs duties:-
• CAP levies – on agricultural and food products imported from outside the EC;
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• excise duty on excise goods – for example tobacco products, hydrocarbon, oils and alcohol
products; and
• ad valorem duty - on goods imported into the UK.
Ad valorem duty is the most commonly encountered and is charged as a percentage of the dutiable
value of the imported goods.
All goods imported into the UK must be declared to HM Revenue and Customs and an entry form
must be completed disclosing full details of the goods. There are a number of ways in which import
duty can be reduced or payment deferred. Additionally, there are a large number of deductions and
reliefs available dependent on the country of origin and type of goods imported into the UK.
For advice or further information on Taxation please contact one of the Partners in the Business
Services department at Paull & Williamsons LLP. Contact details are available in Section 12.
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8. Property Transactions
There are no restrictions on the ownership, acquisition or disposal of Scottish land by foreign
individuals or companies. Scottish properties may, also, be acquired or leased for use as an
investment.
8.1 Contracts for the Sale and Purchase of Property
Contracts for the sale and purchase of property
are generally constituted by an exchange of
formal letters between the solicitors of the
purchaser and the seller. These contain all the
terms of the contract and are known as
“missives”. Missives are legally binding on the
parties.
The essentials, which must be agreed between the parties for a contract to be formed, include:-
• identification of the property;
• the names of the parties; and
• the price.
The missives will also specify the date of entry. The process normally starts with an offer being
submitted on behalf of the purchaser to the solicitor acting on behalf of the seller.
Offers for property in Scotland contain a number of detailed provisions which cover the essentials, as
outlined above, and also include various other provisions. For example, warranties by the seller to the
effect that all the planning paperwork is in order.
It is not expected, and commercially very rare, that any offer is accepted as it stands. Usually, there
will be a series of qualifications and counter amendments (called “qualified acceptances”) back and
forward until agreement is reached.
The missives may also contain clauses which are pre-conditions, for example obtaining planning
consent, board approval, surveys etc. Such missives are legally binding, such to satisfaction of the
pre-conditions. If the conditions are not satisfied within the stipulated timescale, either of the parties
or possibly both have the right to terminate the contract.
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8.2 Commercial Leases
8.2.1 Lease Terms
Leases of commercial property in Scotland are contracts which are regulated by the general law of
contract. Very few statutes affect leases construed under Scots law. There are no automatic
safeguards for commercial tenants in Scotland (with the exception in the case of shops). As a result,
there are no terms implied or imported by statute and all necessary and desired provisions must be
provided for in the lease itself.
The maximum duration for a commercial lease is 175 years.
8.2.2 Assignation
In general a tenant of commercial property is free to assign its lease without landlord’s consent, unless
the provisions of the lease specifically prohibits or restricts such assignation, which of course most
leases invariably do. Assignation of a lease relieves the tenant of any further liabilities under the
lease. The landlord will normally seek fairly tight control over assignation.
8.2.3 Renewal
If the parties take no action to the contrary, they are deemed to have agreed that, following the natural
expiry of the lease, it will continue for a further year on the same terms and conditions or for a period
equivalent to the original period of the lease, if less than a year. It is possible and very common for
the parties simply to treat the lease as at an end at its natural expiry date, with the tenant vacating, the
landlord accepting return of the keys etc. Also, there may be correspondence between the parties
which is the equivalent to an agreement that the lease is to terminate at the natural date of expiry.
In the absence of either of the above situations, one party must give the other the appropriate period of
notice (usually 40 days) prior to the natural expiry of the lease, if the lease is not to continue on this
basis. This means that if neither party has taken any form of action to the contrary at, for example, 30
days prior to the expiry of the lease, a landlord is entitled to require his tenant to remain in occupation
for a further year on the same terms and conditions, even if the tenant does not want to do so.
Equally, the tenant is entitled to insist on remaining in occupation for a further year n the same terms
and conditions, even if the landlord wants the property back. This is the principle known as tacit
relocation.
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8.2.4 Sub-leases
Due to the contractual nature of leases under Scots law, a sub-tenant has no direct relationship with
the head landlord. If the head lease is irritated, the sublease will automatically fall and the sub-tenant
has no rights against the head landlord, but will have a claim in damages against the tenant.
Although, that claim may be worthless if the head lease has been irritated on account of the
insolvency of the tenant. Protection is available to the sub-tenant in this event of this occurring in the
form of a specific contractual document which is entered into between the sub-tenant and the head
landlord, normally with the consent of the tenant.
8.3 Stamp Duty Land Tax
SDLT applies to land and property transactions involving any estate, right or power over land in
Scotland. SDLT is generally payable by the purchaser/tenant and applies to:-
• changes of ownership in land;
• grants and assignations of leases, including missives of let;
• contracts for land transactions which are substantially performed prior to settlement;
• assignations of such contracts; and
• options and pre-emption agreements in respect of land transactions.
SDLT is not payable on the creation and transfer of security interests, licences to use or occupy land
and transactions in which there is no chargeable consideration or the consideration is below £150,000,
in non-residential transactions, and £125,000, in residential transactions.
SDLT rates are:-
• up to 4% of the consideration paid for the acquisition of land; and
• 1% of the net present value (which is calculated by a complex formula prescribed by HM
Revenue and Customs) of lease transactions (including grants, variations and renunciations);
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8.4 Land Registration
Changes in ownership and associated interests in land and property (such as superior, landlord, tenant
and heritable creditor etc) are recorded in the Land Register of Scotland. The Land Register is a map
and computer based system, with all registered subjects indexed on the Ordnance Survey based
Digital Index Map. Securities granted over land and property must also be registered if they are to
have full effect.
A computer based Title Sheet is created with the holder of the relevant interest being issued a
Certificate of Title backed by State guarantee. This certificate takes the form of a Land Certificate for
the interests of the proprietor, superior, landlord etc or a Charge Certificate for the interest of a
heritable creditor.
Registers of Scotland, a non-ministerial government department, is responsible for maintaining the
Land Register.
For advice or further information regarding property transactions in Scotland please contact one of
the partners in the Property Services department at Paull & Williamsons LLP. Contact details are
available in Section 12..
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9. Planning/Environmental
9.1 Planning
9.1.1 Introduction
The planning status can have a significant effect of the value of a property. Part of the due diligence
to be undertaken before agreeing to acquire any property should include a check on whether it
benefits from planning permission.
Planning permission is almost always required for ‘development’ on any significant scale in Scotland.
This term is defined in law and covers a wide range of building and engineering work as well as
changes in the way land and buildings are used. Planning law also covers changes to listed buildings
and control of advertisements.
The 3rd of August 2009 saw the implementation of the majority of the provisions of the Planning etc
(Scotland) Act 2006, most notably in relation to Development Planning and Development
Management (including appeals, local reviews and enforcement). The Planning etc. (Scotland) Act
2006, together with the provisions of the Town and Country Planning (Scotland) Act 1997 which
remain in force, are the two main pieces of planning legislation in Scotland.
9.1.2 National Planning Framework
Ministers of the Scottish Parliament are responsible for the National Planning Framework for
Scotland (“NPF”) which sits at the top of the policy hierarchy and is the long term strategy for the
development of Scotland over the next 25 years.
9.1.3 Development Planning
Development plans are intended to provide a clear vision of how places in Scotland should develop
and are the core documents against which planning applications are assessed for determination.
Development planning is a consultative process which involves a range of interests, includes strategic
environmental assessments and results in a plan for local development.
9.1.4 Development Management
Development management relates to the processing of applications for planning permission. The
relevant development management provisions are contained in the Town and Country Planning
(Development Management Procedure) (Scotland) Regulations 2008 as amended. These regulations
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are linked to the hierarchy of national, major and local developments as set out in the NPF and the
Town and Country Planning (Hierarchy of Developments) (Scotland) Regulations 2009.
In the first instance, applications for planning permission are dealt with by the local planning
authority. Each authority works under the general principle that decisions are taken locally, unless
there are specific reasons for referring them to Scottish Ministers. Ministers will, also, only intervene
in very exceptional circumstances to determine a planning application.
In 2009, Scottish Ministers intervened when the
local planning authority originally rejected
Donald Trump’s planning application in respect
of a golf and residential development on the
Menie Estate in Aberdeenshire. Following
Ministerial intervention, Mr Trump was
subsequently granted the necessary permission
for his proposed development.
9.1.5 Appeals and Local Reviews
Where applications for major or national development have been determined on or after the date of
implementation of the relevant provisions of the Planning etc. (Scotland) Act 2006 (being 3 August
2009) and the planning authority refuses to consent or grants consent subject to conditions, the
applicant has the right of appeal to the Scottish Ministers. In circumstances where applications for
local development are determined by council members rather than delegated to officers for decisions,
the applicant, again, has the right of appeal to the Scottish Ministers. Appeals may be upheld or
dismissed, reversed or any part of the decision of the planning authority may be varied.
On an appeal, the Court cannot impose its own decision over that of the Scottish Ministers. All it can
do is quash the decision, which then refers the application back to the Ministers for redetermination.
There can be no guarantee that a successful challenge in court will result in a different decision by the
Ministers.
Where applications for local development are delegated for decision to an appointed officer and
subsequent consent or consent subject to conditions is granted, the applicant has the right to require a
local review of the decision by a local review body made up of council members. The local review
body may uphold, reverse or vary a decision which they are asked to review.
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9.2 Environmental
Scotland’s industrial history has left a legacy of contaminated land and water. Contaminated land is
dealt with by a regime which focuses on the ‘polluter pays’ principle but is subject to complicated
riles and exception, which can catch out innocent owners and occupiers. The cost of cleaning up can
be significant and statutory action may be taken by the regulators to secure remediation. This means a
check on the site history is extremely importance and although the likelihood of a site being
contaminated is minimum, it is an essential part of due diligence prior to any acquisition.
Consents are required for a variety of industrial processes. These consents are often granted subject to
conditions regulation their operation. Failure to comply with the conditions of consent may result in
enforcement action or prosecution.
There are strict rules imposed on those in control of premises to manage risks associated with asbestos
and other health and safety risks. There is also extensive regulation dealing with waste, packaging,
use of solvents, ozone depleting substances, hazardous substances and other issues, must of which
originated from the EU.
Environmental issues are becoming increasingly pertinent for companies in Scotland. Both in the
context of their day to day operations and in their acquisition of other businesses.
For advice or further information on Planning and Environmental matters please contact Elaine
Farquharson-Black at Paull & Williamsons LLP. Contact details are available in Section 12..
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10. Intellectual Property
Intellectual Property (“IP”) lets people own the work they create. There are four main types of IP
rights used to protect inventions or creations – they are patents, trade marks, copyrights and
registered designs.
The Intellectual Property Office is responsible for dealing with applications in respect of the above IP
rights, which are further discussed in sections 10.1 to 10.4.
For the purposes of this section reference will be made to the UK, as opposed to Scotland, as the rules
and regulations on IP rights in the UK apply directly to Scotland.
10.1 Patents
A patent protects new inventions and covers how things work, what they do, how they do it, what they
are made of and how they are made. It gives the owner the right to prevent others from making,
using, importing or selling the invention without permission.
In order for an invention to be patented in the UK it must:-
• be novel;
• involve an inventive step;
• be capable of industrial application; and
• not be specifically excluded by statute.
An application for a patent should generally contain a request for the grant of a patent, a specification
containing a description of the invention together with drawings cited and the requisite filing fee. UK
patents are granted for a term of 20 years, subject to the payment of renewal fees. The Patents Acts
1977 and 2004 set out rules on protection.
UK and European patents are generally enforceable throughout the UK courts. The main remedies
the courts can grant are permanent or interim injunctions, interdicts, delivery up, damages or an
account or profits. Criminal sanctions are also available.
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10.2 Trade Marks
A trade mark is a sign which distinguishes the proprietor’s goods or services provided in the course of
a trade or business from those of others. It can be, for example, words, logos or a combination of
both. In order to be registered, a sign must be capable of graphical representation (which could be in
the form of simple words or a logo / graphic known as a “device mark”) and uniquely distinguish the
goods or services of one undertaking from another.
The trade mark holder may enjoy the exclusive right to use the trade mark in the UK and may prevent
others using a mark which is the same as (or similar to) his mark where the use has cause, or is likely
to cause confusion. The trade mark holder may also assign or license the use of the mark to other
parties, provided procedures are followed by both the holder and the proposed registered user.
The Intellectual Property Office is not permitted to register any trade mark which is likely to deceive,
cause confusion or offence or which is contrary to law or morality. Subject to the payment of renewal
fees, once a trade mark is registered it is effective indefinitely. The Trade Marks Act 1994 sets out
methods of enforcement.
Community Trade Marks can be applied for through the European Office of Harmonisation in the
Internal Market (OHIM).
10.3 Copyrights
Copyrights protect authors from the unauthorised copying of original copyright works. Copyright is
available for original literary, dramatic, artistic and musical works as well as layouts or typographical
arrangements, recordings, broadcasts and computer programs.
The duration of a copyright for literary, dramatic, artistic and musical work is the life of the author
plus 70 years. The duration of a copyright of films is 70 years after the death of the last surviving
director, author of the screenplay or composer of any musical specifically created for the film. The
copyright of recordings and broadcasts lasts 50 years from the year in which the work is made or
released. For published editions, the copyright duration is 25 years from the first publication.
The owner of the copyright has the exclusive right to copy the work, issue copies of the work to the
public, rent the work to the public, perform, show or play the work in public, communicate the work
to the public and make an adaptation of the work or do any of the above in relation to an adaptation.
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As a general rule, the author of the work is the owner of the copyright. Exceptions apply if the work
is created either in the course of employment or on behalf of UK Parliament or the Crown. The
owner may grant licenses for the use of the copyrighted material.
The rules on protection are set out in the Copyright, Designs and Patents Act 1968.
10.4 Designs 10.4.1 Registered Designs A registered design is a legal right which protects the overall visual appearance of a product in the geographical area it is registered. The visual features that form the design include such things as the lines, contours, colours, shape, texture, materials and the ornamentation of the product which, when applied to the product, give it a unique appearance.
Once a design has been registered it is protected against other designs which are too similar being created in the same geographical area. Registration gives protection for the visual appearance of the product but not what it is made from or how it works.
In order for a design to be registered it must:-
• be new;
• have individual character; and
• relate to the appearance of all or part of a product resulting from certain features of that product or its ornamentation.
A design is new if no identical (or similar) design has been published or publicly is disclosed in the UK or the European Economic Area (EEA).
Protection lasts for a maximum of 25 years, subject to renewal fees every 5 years. The Registered Designs Act 1949 (as amended) sets out the rules on protection.
10.4.2 Unregistered Designs
Unregistered designs arise automatically in original designs.
To qualify as an unregistered design, it must:-
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• relate to an aspect of shape or configuration of the whole or part of an article;
• not be commonplace;
• be recorded in a design document or be the subject of an article made to the design;
• be created by a qualifying person, which means a person or business entity in the UK, EU, Channel Islands, the Isla of Man, any UK colony or any country designated as qualifying for reciprocal protection.
The holder of an unregistered design in the UK can enjoy the exclusive right to reproduce the design for commercial purposes by making articles to that design or by making a design document recording the design for the purpose of enabling the articles to be made. The holder may also prevent others from infringing their right and assign or license the right to other parties.
An unregistered design is automatically protected provided it is recorded in a tangible form, ie a diagram. It is also possible to have automatic protection as a Community unregistered design (for which the qualifications are slightly different).
The duration of an unregistered design is the lesser of either:-
• 15 years from the end of the calendar year when the design was first recorded in a design document or, if earlier, from when an article was first made to the design; or
• 10 years from the end of the calendar year when articles made to the design were first made available for sale or hire.
For advice or further information on Intellectual Property please contact Lester Cameron at Paull &
Williamsons LLP. Contact details are available in Section 12.
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11. Final Comments
More than 1,500 companies have already chosen to invest in Scotland which is largely due to the
skills base of a highly educated workforce, the transport and telecommunications infrastructure, as
well as a whole range of other business benefits.
Scotland offers unique benefits across a number of industries and sectors, and can provide tailor-made
locations and accommodation for all sizes of ventures with the scope to grow and develop.
Whether you are looking to start, relocate or expand your business in Scotland, Paull & Williamsons
LLP offers a broad range of services and can provide specific advice on any of the areas contained in
this guide.
Paull & Williamsons LLP is one of Scotland's leading commercial law firms, and has the largest team
of lawyers based in Aberdeen. Many of our partners are cited as 'leading lawyers in their field', and
independent legal directories, such as the Legal 500 and Chambers, describe us as being 'dominant in
the market', 'commanding the elite deals' and 'solution-oriented' with an 'unparalleled understanding of
the real issues'.
The firm advises on UK wide matters as a number of our partners and lawyers are qualified to
practice in Scotland and England and Wales.
The firm’s client base is one of the strongest of any Scottish law firm, with a geographical reach
extending throughout Scotland and overseas.
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12. Contact Details
Gordon A Buchan Managing Partner Tel: +44(0)1224 621621 E-mail: [email protected]
Alan R McNiven Chairman Partner – Corporate Tel: +44(0)1224 621621 E-mail: [email protected]
Business Services
Kenneth S Gordon Lead Partner – Corporate Tel: +44(0)1224 621621 E-mail: [email protected]
David S Freeman Lead Partner – Private Client Corporate Tel: +44(0)1224 621621 E-mail: [email protected]
Lester F Cameron Lead Partner – Intellectual Property and Technology Corporate Tel: +44(0)1224 621621 E-mail: [email protected]
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Gordon B Davidson Partner – Corporate Tel: +44(0)1224 621621 E-mail: [email protected]
Jamie G C Stark Lead Partner – Banking Corporate Tel: +44(0)1224 621621 E-mail: [email protected]
Scott M Allan Partner – Corporate and Banking Tel: +44(0)1224 621621 E-mail: [email protected]
John Kennedy Partner – Corporate and Banking Tel: +44(0)1224 621621 E-mail: [email protected]
Alasdair C Freeman Partner – Corporate Tel: +44(0)1224 621621 E-mail: [email protected]
Alasdair A Smith Partner – Corporate and Banking Tel: +44(0)1224 621621 E-mail: [email protected]
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Bruce M R McLeod Lead Partner – Oil and Gas Tel: +44(0)1226 621621 E-mail [email protected]
Robin M Clarkson Partner – Oil and Gas Tel: +44(0)1224 621621 E-mail: [email protected]
Brian W Hemming Partner – Oil and Gas Tel: +44(0)1224 621621 E-mail: [email protected]
Property Services
Richard Goodfellow Lead Partner – Commercial Property Tel: +44(0)1224 621621 E-mail: [email protected]
David F McLeod Partner – Commercial Property Tel: +44(0)1224 621621 E-mail: [email protected]
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Brian W Knowles Partner – Commercial Property Tel: +44(0)1224 621621 E-mail: [email protected]
A Michael F Morrice Partner – Commercial Property Tel: +44(0)1224 621621 E-mail: [email protected]
John A Strachan Partner – Commercial Property Tel: +44(0)1224 621621 E-mail: [email protected]
Elaine Farquharson-Black Lead Partner – Planning and Environmental Tel: +44(0)1224 621621 E-mail: [email protected]
Dispute Resolution
Sean A Saluja Lead Partner – Employment Tel: +44(0)1224 621621
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E-mail: [email protected]
Margaret M Gibson Partner – Commercial Litigation Tel: +44(0)1224 621621 E-mail: [email protected]
Gordon C Steele Partner – Commercial Litigation Tel: +44(0)1224 621621 E-mail: [email protected]
Rona M Jamieson Partner – Health and Safety Tel: +44(0)1224 621621 E-mail: [email protected]
Kenneth J MacDonald Partner – Commercial Litigation Tel: +44(0)1224 621621 E-mail: [email protected]
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Geoff Clark Partner – Employment Tel: +44(0)1224 621621 E-mail: [email protected]
.
H Stuart Robertson Partner – Employment Tel: +44(0)1224 621621 E-mail: [email protected]
Tricia Walker Partner – Employment Tel: +44(0)1224 621621 E-mail: [email protected]
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